GST Accounting Entries in Financial Books under GST (Part-1)

Some Accounting Entries in Financial Books under GST :
PART-1

According to Section 35(1), Registered persons have to keep and maintain the Accounts and Records of (a) production or manufacture of goods; (b) inward and outward supply of goods or services or both; (c) stock of goods; (d) input tax credit availed; (e) output tax payable and paid; and (f) such other particulars as may be prescribed: for each (declared in Registration Certificate) business place. And have to maintain books and records business place wise separately. As per Rule notified, have to follow Rule 56 of CGST Rule for general cases and Rule 58 for Godown, warehouse and Transporters matters.

Some Important point: In GST, as section 35(1)(b) have to maintain Supply data but in some cases Accounting data and Supply data may not appear as same figure. Exemple: 1) In Valuation cases accounting figure of sale and GST Value of Supply figure (on which tax is to be calculated) are not same. 2) in some cases of Deemed Supply, Accounts not support that supply as Sale but GST treat that according to supply. So HAVE TO MAINTAIN A SEPARATE OUTPUT SUPPLY SHEET / ACCOUNT.

In my below mentioned all entries, all tax ledgers are not segregated as IGST, CGST and SGST (and in requirement, needed CESS ledger also) but IN TIME OF PASSING ORIGINAL BOOKS ENTRY YOU HAVE TO CREATE ALL TAX LEDGERS SEPARATELY FOR IGST, CGST AND SGST AND IN REQUIREMENT HAVE TO CREATE CESS LEDGERS ALSO.

Try to maintain 1) Common Input Tax Credit A/C as per balance and entry of Electronic Credit Ledger, 2) Reverse Charges Liability A/C & Liability Ledger for Forward Charges A/C as per balance and entry of Electronic Liability Ledger and 3) GST Cash Account As per electronic Cash Ledger

1) In time of Purchase of Goods or Services (Inward Supply) from Regd. Person (Other than Composite Scheme Holder) and pay tax as Forward Charges:-
Here Input Tax ledger is current Assets by nature according to GAAP but as per GST law we can say that it has no power to use for paying output tax liability before fulfilling the conditions of section 16(2) of CGST act in general cases.

Purchase /Expenses A/C (B to B Inward Supply for Forward Charges)..Dr.
Input Tax A/C .Dr.
Creditors A/C..Cr.

Now assume it is used or intended to be used in the course or furtherance of his business according to section 16(1) and after fulfilling the four conditions of section 16(2), we can say that the credit of input tax can take. So we may open ledger with name Input Tax Credit (It is also Current Assets Type Ledger according to GAAP and According to GST Law, [As GSTR 9 needs input Tax Credit for Inputs, inward Services and Capital goods separately, you may prepare separate Input Tax Credit Ledgers for goods, services and capital gods] it has the power to pay/reduce Output Tax , I mean by using that ledger, we can pay Output Liability). In the day when filing GSTR 3B, by filing the return, the balance of Input Tax may transfer to Input Tax Credit (Electronic Credit Ledger) provisionally according to section 41 and it is used for paying self assessed output tax.

So In time of filing GSTR 3B, we may pass the entry as:

1. Input Tax Credit for Inputs /Input Tax Credit for Inward Services A/C..Dr.
   Input Tax A/C.Cr.
2. For transfer in common ITC Bucket,

Common Input Tax Credit A/CDr.
Input Tax Credit for Inputs /Input Tax Credit for Inward Services A/C..Cr.

2) In time of Services (Inward Supply) from Regd. Person and pay tax as Reverse Charges (RCM):-

Firstly You may pass the following entry:

Entry: Purchase of Services (RCM).Dr.
Creditors.Cr.

You have to pay tax in Reverse Charge and your point of taxation for supply of services in RCM is governed by section 13(3) of CGST Act, so in that day you may pass the following entry for increase of Tax Liability. For that you may open ledger with the name Tax Paid on Reverse Charges and it will placed as Current Assets type. Basically its a control ledger for raising and finishing the double entry system of accounting. You also open Output Tax for Reverse Charge under Current Liability head.

Entry: Tax Paid on Reverse Charges A/CDR.
Output Tax for Reverse Charge A/C.CR.

Now after the month end, in the day when filing GSTR 3B, you have to transfer all the Liabilities of Reverse Charge in a single liability ledger and you have to pay that liability. You may Give the name of the Ledger as Reverse Charges Liability and put it under Current Liability type. That ledger of your books is just like your E Liability Ledger with GST Portal.

Entry: Output Tax for Reverse Charge A/C.DR
Reverse Charges Liability A/C.CR.

Now for payment of that liability you have to use the balance of GST Cash Ledger. I mean You cannot use Credit Ledger for discharge that kind of liability. So Firstly you transfer balance from Your Bank Account to respective GST Cash Ledger. And it is a contra entry. GST Cash ledger is a type of Cash and Cash equivalent type (It is also a kind of Current Assets).

Entry: GST Cash A/C..Dr.
Bank/CashCr.

Now Actual Payment means abolishing of that self assessed Output Tax Liability so you have to pass the following entry in time of GSTR 3B filing, you may pass that payment entry. As the process of self assessed liability payment for every tax period done through GSTR 3B filing, we have to pass that entry in time of GSTR 3B filing.

Tax Payment Entry: Reverse Charge Liability A/C.Dr.
GST Cash A/C.Cr.

Now after finishing of Tax Payment, you are eligible for taking the credit and you may pass the entry in the same GSTR 3B (I mean in that GSTR 3B where the Tax Payment Made) or Next GSTR 3B (Lime Limit upto Next Years September months GSTR 3B according to sub section 4 of section 16) and the credit will transfer to Input Tax Credit Account provisionally:

Entry: Input Tax Credit for Inward Services A/C…Dr.
Tax Paid on Reverse Charges A/C.Cr.

(You may transfer that balance of Input Tax Credit for Inward Services credit in Common input Tax Credit ledger before Credit taken in GSTR 3B)

3) Purchase of Capital Goods from Registered person (Other than Composite Scheme Holder) entry matter:

Entry: Capital Goods/Fixed Assets A/CDr.
Input Tax A/C..Dr.
Party A/C.Cr.

Now if the credit is not falling the clause of Section 17(5) then you may transfer full credit of Input tax in input tax credit ledger. So entry in time of GSTR 3B filing is

Entry: i) Input Tax Credit for Capital Goods A/C..Dr.
Input Tax A/CCr.

Entry: ii) For transfer in common ITC Bucket,
Common Input Tax Credit A/CDr.
Input Tax Credit for Capital Goods A/C..Cr.

If the Fixed Assets covered for credit blockage u/s 17(5) of CGST Act, then You should pass two entries after passing the first entry of Assets purchase (according to first entry of point no. 3), first one is for transfer the Input Tax in a control ledger for reflecting the report of the blockage items in ledger wise. And the second one is for transfer the balance to the respective Capital Goods/Fixed Assets Account. And firstly you have to open a ledger with ledger name Block Credit A/C and it goes to Current Assets type. You may pass both the entries in time of GSTR 3B filing.

First Entry: Block Credit A/C.Dr.
Input Tax..Cr.

Second Entry:

Capital Goods/Fixed Assets A/C.Dr.
Block Credit A/C..Cr.

4) Purchase/Expenses made from Registered person (Other than Composite Scheme Holder) but Credit is blocked u/s 17(5) entries:

Firstly You have to open Block Credit A/C under the head Current Assets.

1^st. Entry: Purchase /Expenses A/C (B to B Inward Supply for Forward Charges)..Dr.
Input Tax A/C .Dr.
Creditors A/C..Cr.

You may pass the second and third entry in time of GSTR 3B filing.

2^nd. Entry: Block Credit A/C. Dr.
Input Tax A/C ..Cr.

3^rd. Entry: Now we have to transfer the Tax Amount to the Respective Expenses account so its finally going to the Debit side of Profit ad Loss Account.
Purchase /Expenses A/C ..Dr.
Block Credit A/C. Cr.

4) Reversal of Credit According to Rule 37 of CGST Rule (Other than without consideration transactions according to Schedule I of CGST Act, Rule 37 Revarsal is not applicable for Schedule I Transactions) :

Basically According to present mechanism of GSTR 3B, that kind of ITC reversal is a case where Input Tax Credit is decreased but as per Rule Says according to Rule 37(2), This kind of cases, we have to increase Output Liability and entried into GSTR 2. But Presently GSTR 2 is not in force, so my following entries are shown according to GSTR 3Bs mechanism. Non Payment to creditors within the prescribed days as per provisions of Rule 37 of CGST Rule, from the invoice date, you have to reverse the credit which you took previously. You have to revise credit with Interest. So you have create two ledgers and firstly you may use a control account for displaying the ledger wise report for blockage so we have to open a ledger under Current Assets and you may give the ledgers name as Reversal of Non Payment and secondly you may also use another account for hold the amount in balance sheet for future time. (In future, reclaimed that credit will allowed according to GST Law) in current Assets type and you may give the name as Input Tax for future use

Entry:

In time of Filing GSTR 3B, You may pass the first entry as:
Reversal of Non Payment A/CDr.
Interest on Reversal (Expenses Type, Shown in Dr. Side of P/L A/)..Dr.
Input Tax Credit A/C..Cr.
Interest on Reversal Payable A/C ( Current Liability Type)..Cr.

Second Entry: Interest Liability transfer (All interest liability for that month) to Liability for Interest Account
Interest on Reversal Payable ..DR.
Liability Ledger for Interest..Cr.

Third entry for Interest payment through GST Cash Ledger:
Liability Ledger for Interest..Dr.
GST Cash.Cr.

Now, You have to transfer the amount of Reversal of Non Payment A/C to Input Tax for future use A/C. and have to pass entry as

Input Tax for future use A/C.Dr.
Reversal of Non Payment A/CCr.

Now when Payment made to the Creditor, you may re claim the ITC which you reversed earlier according to Section 43 of CGST Act. And entry is

Input Tax Credit A/C.DR.
Input Tax for future use A/C.CR.

4) Reversal of Credit according to calculation and adjustment of Section 17(1) and 17(2) of CGST Act, read with Rule 42 and Rule 43 of CGST Rule.

When Inputs and input services partly use for business and partly use or others purpose then according to section 17(1) of CGST Act, credit allowable for business purpose use only. And according to section 17(2) of CGST Act, when goods and services partly use for effecting taxable supply including zero rated supply and partly for effecting exempt supply, then credit allowable only for input tax attributable to the said taxable supply including zero rated supplies. And reversal of Credit have to done according to Rule 42 of CGST Rule. (Please use Formula for calculation according to details of Rule 42)

So You may create a ledger for display the report of reversal of rule 42 and rule 43 ledger wise, so in current assets type. So you may give the ledger name as Reversal Credit for Rule 42 and Rule 43 A/C

In time of Filing of GSTR 3B, you may pass the following entries.

First Entry: Reversal Credit for Rule 42 and Rule 43 A/CDr.
Input Tax Credit for Inward Services (Assume for Pure non goods realated Expenses) A/CCr.

Second Entry: Respective Expenses A/C (For transfer to Debit side of P/L finally)..Dr.
Reversal Credit for Rule 42 and Rule 43 A/CCr.

Subject to provision of section 16(3) of CGST Act, When Capital goods partly use for business and partly use or others purpose then according to section 17(1) of CGST Act, credit allowable for business purpose use only. And according to section 17(2) of CGST Act, when capital goods partly use for effecting taxable supply including zero rated supply and partly for effecting exempt supply, then credit allowable only for input tax attributable to the said taxable supply including zero rated supplies. And reversal of Credit have to done according to Rule 43 of CGST Rule. (Please use Formula for calculation according to details of Rule 43)

In time of Filing of GSTR 3B, you may pass the following entries.

First Entry: Reversal Credit for Rule 42 and Rule 43 A/CDr.
Input Tax Credit for Capital Goods A/CCr.

Second Entry: Respective Capital Goods/Fixed Assets..Dr.
Reversal Credit for Rule 42 and Rule 43 A/CCr.

5) Accounting of Taking Pre GST Registration Credit of Inputs:

According to Section 18(1)(a) or section 18(1)(b) Read with Rule 40, credit of Pre GST Registration period can take after registration after fulfilling some conditions.

We all know that before taking registration if any person purchase any inputs from another Registered person then the tax element is going to the cost of that product. I mean it is a kind of element of cost according to AS-2. So after taking registration, we have to reduce the purchase figure and transfer it to input tax credit ledger. And also in stock effect, stock value is reduced by the tax amount. So in time of Filing ITC 01 form in common portal, need to pass the below mentioned journal in books:

Input Tax Credit for inputs A/C.Dr.
Purchase A/C..Cr.
(Stock Value is to be reduced also)

Secondly: Transfer that credit to Common bucket:
Common Input Tax Credit A/CDr
Input Tax Credit for inputs A/C.Cr.

6) Sales made to B to B or B (Goods/Services)
We have to Open 1) Sales B to B A/C in Income Type. 2) Output Tax A/C In Current Liability Type.

Entry in Time of Sale: Debtors A/CDr.
Sales B to B A/C.Cr.
Output Tax A/C.Cr.

6) Sales made to B to B or C (Goods/Services)

Entry in Time of Sale: Debtors A/CDr.
Sales B to C A/C.Cr.
Output Tax A/C.Cr.

7) Transfer the Output tax Liabilities to a Common Forrawad Charge Liability Ledger in time of GSTR 3B filing.

Firstly we have to Open a Ledger named Liability Ledger for Forrowad Charges A/C in the Group of Current Liability.

Entry: Output Tax A/C.Dr.
Liability Ledger for Forrowad Charges A/C. Cr.

8) Payment made for Tax Liability (In time of GSTR 3B Filing, we have to Pass the Entry)

According to Section 49 of CGST act, we can say that payment made means, discharge of liability. You can pay through Input Tax Credit and through GST Cash or both but payment of tax through Credit sequence (IGST, CGST, SGST) depends on section 49A, Section 49B read with Rule 88A.

And Firstly you have to transfer all the Credit ledgers balance in a Common Credit Ledger A/C if previously not done in books. So you have to Open a Ledger with a name: Common Input Tax Credit A/C and it will pace under Current Assets Group.

So Firstly You have to transfer all credit in that common Credit (IF PREVIOUSLY NOT DONE IN BOOKS)

Entry: Common Input Tax Credit A/CDr.
Input Tax Credit for Inputs A/C Cr.
Input Tax Credit for Inward Services..Cr.
Input Tax Credit for Capital Goods A/C..Cr.

Now Payment of Tax Entry:

Entry: Liability Ledger for Forrowad Charges A/C. Dr
Common Input Tax Credit A/CCr.
GST Cash A/CCr.

(In real time entry, Tax ledgers are separately accounted in books for CGST, SGST, IGST and if needed Cess is also accounted so payment of tax, I mean discharge of Tax Liability through Credit sequence (IGST, CGST, SGST) depends on section 49A, Section 49B read with Rule 88A.)

9) Sales return taken place in different tax period from the supply time . I mean you have to raise Credit Note.

Output Tax A/C.. Dr.
Sales Return B to B or Sales Return B to C A/C.Dr.
Debtors.Cr.

10) Claim taken by deductee of GST TDS, deduction made from payment made to him by the recipient.

According to Section 51 of CGST Act, the TDS deduction amount shall claim by the deductee in his GST Cash Ledger. I mean Firstly the deductee have to transfer the deduction amount (deduction done by the deductor) to his GST Cash Ledger. So We know that when GST TDS is not realized by the deductee, it will shown in Assets side of Balance Sheet (Debit Balance) under Current Assets. Assume the name of Ledger: GST TDS Receivable

In time of filing GST Claim Received return from portal then we have to Pass the following Entry:
GST Cash A/CDr.
GST TDS Receivable..Cr.

Part 2 will update very soon.

MRIDUL (MRINAL KANTI DAS)
Sr. Accounts and Taxation Manager.
S.K. Sinha Ray & Co.
[email protected]